Finance minister nominee urges Kenya to lower IMF reliance by cutting deficit

Nairobi — Kenya’s finance minister nominee on Saturday defended the IMF’s role in supporting the economy for now, but said the country should become more self-reliant by cutting its budget deficit and shifting to cheaper debt.

The East African nation, which has been rocked by antitax hikes protests in the past two months that forced President William Ruto to abandon this year’s funding plan, agreed a lending programme with the Washington-based fund in 2021 that has since been expanded and extended.

“The IMF will never invite themselves to a country. We do invite them and agree on a programme,” John Mbadi told a parliamentary vetting panel.

He said he did not think Kenya needed to be under an IMF programme for long.

“We must move to a system in which we devolve ourselves from the IMF, and start depending on ourselves.”

The country should cut its annual budget deficit to 2.5%-3%, he said. The projected deficit for this financial year, after the withdrawal of the tax hikes, stands at 4.4% of GDP.

Mbadi said he would not support new taxes or increases, if he is confirmed to the role, arguing that the solution is improving efficiency at the tax authority and focusing on areas such as customs duties, where the government is losing cash to smugglers and counterfeiters.

Mbadi, part of Ruto’s planned new government team, added the government had to reorganise the composition of its public debt to manage liabilities more efficiently and “debt accountability” will be his top priority.

Unsustainable price

“We must restructure our debt,” Mbadi told the legislators, referring to the need to shift away from expensive commercial debt and lean on cheaper alternatives.

Commercial debt, priced at an “unsustainable” 8-9%, made up 23% of Kenya’s external debt, Mbadi said, and his goal would be to cut that to no more than 5%, with the larger share coming from cheaper multilateral sources such as the World Bank.

He defined debt accountability as making it a requirement for government to publish annually a debt register that shows which amounts are owed to which creditors, and the cost.

Mbadi is an opposition legislator picked by Ruto in a wider effort to prop up his administration after deadly protests in which more than 50 people were killed in the past two months.

The turmoil led to downgrades from ratings agencies, including Fitch, which cut Kenya to “B-” from “B” on Friday.

The government has submitted a fresh economic repair plan to the IMF, and it expects the board of the fund to review it at month’s end.

Mbadi said that if confirmed as finance minister, he would reform the ministry's economic unit so that it can generate “more realistic” budget and revenue forecasts.

Economic analysts have blamed overoptimistic economic projections by the Treasury over the years for wide budget deficits and higher borrowing.

“I’m very ready to disturb the stubborn status quo at the Treasury,” Mbadi said.

Reuters